Oil-rich shale brings high hopes in Mississippi, Louisiana

Wed, 2014-03-05 16:43

GILLSBURG, Miss. (AP) — Residents living above an oil-rich shale formation that stretches across southwest Mississippi and Louisiana have been waiting on a boom for years. A steady trickle of drilling is already boosting the rural region’s economy, and spending by two oil companies could make 2014 the year that many other locals finally cash in on the oil far beneath their feet.
Already, Max Lawson has spent hours watching the round-the-clock work of shoving pipe into the ground in his back pasture. The process began two years ago when Encana Corp. built a big gravel pad, but didn’t take off until late last year when a convoy of 200 trucks carted in a drilling rig and other equipment to bore into the earth looking for oil.
“They call it the Gillsburg Christmas tree,” he said while standing near the brightly lit rig. “It looks like a little city over here at night.”
Gillsburg and surrounding Amite County lie above a prime section of the Tuscaloosa Marine Shale, a geologic formation that stretches in boomerang shape across Louisiana’s midsection and into southern Mississippi. Drillers have known about the formation north of the Gulf of Mexico for years, but affordable technology to remove the oil from the shale’s tight pores was slow to develop.
Thanks partly to advances in hydraulic fracturing techniques, Encana Corp. and Goodrich Petroleum plan to spend hundreds of millions of dollars in the area in 2014. So far, Goodrich and others have drilled more than 30 wells across the region, trying to find the right methods.
Goodrich Chief Operating Officer Robert Turnham said that number could double or triple in the area straddling the state line just this year if drillers continue to make progress.
“It’s at a stage where you need more wells that have consistent results, that show the repeatable results there are in other plays,” Turnham said.
Louisiana State University scientists estimate the formation holds 7 billion barrels of oil, though that total isn’t proven yet. Most of it is a light, sweet crude that can be sold to refiners for more than $100 a barrel. By comparison, the federal government estimates that the U.S. has about 40 billion barrels of proved oil reserves.
Still, the exploration isn’t without financial risks because of the tricky nature of the rock that holds the oil. Goodrich’s stock took a big dive Feb. 20 when it announced results that failed to meet analysts’ expectations. One key issue was a troublesome well Goodrich drilled elsewhere in Amite County that initially produced a disappointing 500 barrels per day.
For the region’s economy, though, the drilling has already provided a much-needed infusion, even if it’s not an all-out boom yet.
Heavily wooded with only a handful of small towns, Amite County has relied on forestry in recent decades. But Georgia-Pacific LLC closed a plywood mill in Gloster in 2009. Combined with other business closures, Chancery Clerk Ronnie Taylor said Amite County lost as many as 850 jobs. The county’s 4,600 workers had an 8.7 percent unemployment rate in December, higher than Mississippi’s average. Here and there, pastures are reminders of the county’s fading dairy industry.
Bernell McGehee, an accountant in Liberty, said his family leased some forestland south of town to Encana for a $300-an-acre one-time payment. He stands to earn more in royalties if the land produces oil.
“Any debts we’ve had, we’ve pretty much been able to get rid of,” he said.
McGehee is a partner in the Ward’s restaurant in Liberty, Amite County’s only fast-food franchise. He said sales have gone up about 10 percent over the last year, enough to persuade the owners to buy a small lot to add more parking.
Other business owners are taking a more tentative approach. Benny Vine says business at Vine Brothers Quality Meats in Centreville hasn’t increased enough to merit an expansion.
“I don’t know if I want to add on to the restaurant because it may not happen,” Vine said.
Rhett Anderson was already planning a new house when he signed a deal to lease his mineral rights and receive royalties from Encana. He said the money means he hasn’t cut any corners on the 7,500-square-foot dream house.
“I could build this home the way the dream was,” Anderson said.
Kirk Barrell, whose company assembles lease tracts and sells them, estimates oil companies have leased as much as 1.7 million acres of Tuscaloosa Marine Shale land in Louisiana and Mississippi, spending more than $300 million.
And for those who may have sold their mineral rights before the current uptick in exploration, there are other ways to make money. For example, landowners can make tens of thousands of dollars leasing their ponds to hold the water used in fracturing.
“Most folks will find a way to benefit some,” McGehee said.
There are drawbacks, too. For example, drilling trucks are tearing up the thin ribbon of asphalt on many county roads.
“The biggest change I’ve seen is the amount of traffic, the number of 18-wheelers that are using the street,” said Charles Jones, an 80-year-old having coffee with friends at Liberty Drug Store, where oil has begun to rival college football as a conversation topic.
If the LSU estimates prove true, the Tuscaloosa Marine Shale would be among the very largest fields in the United States.
Among recent boom areas, the U.S. Geological Survey estimates that North Dakota’s Bakken and Three Forks formations have about 7.4 billion barrels, although experts say the estimates may be low. North Dakota’s booming oil industry has driven up home prices, decreased unemployment and attracted newcomers to a state that had been losing population until recent years.
In Louisiana and Mississippi, drillers have been seeing oil for years in the Tuscaloosa Marine Shale when they punched through on the way to deeper reserves — but there was no technology to suck oil from the shale’s “tight” pores. That began to change with the development of horizontal fracturing techniques, but some companies were still reluctant to drill because the shale’s makeup differed from other areas where the approach worked.
Goodrich and others worked on fine-tuning their approaches, and the industry noticed when Goodrich completed a promising well just west of Amite County.
Believing it’s found the recipe, Goodrich is making a big bet on the formation. It spent $27 million to acquire leases held by Devon Energy Corp. mostly in Louisiana’s Tangipahoa, St. Helena and East Feliciana parishes and now plans $300 million in drilling in 2014 in Louisiana and Mississippi. Encana plans $200 million to $300 million in work on its leases, which are more concentrated in Mississippi. Others are making investments as well, with Houston-based Halcon Resources announcing Wednesday that it had acquired 307,000 acres and plans to drill 10 to 12 wells in the region this year.
Another key to making the area more lucrative will be driving down the price of drilling, which has been costing $12 million or more per well. Industry leaders say they can cut the cost to around $7 million a well by drilling more quickly and drilling multiple wells from one pad.
Anderson, who signed a lease with an energy company and is now also getting royalty checks from oil production, said the money he’s received has changed his outlook on work.
“Now I don’t think about having to go back to work. This is my work. I maintain the property,” he said of his 500-plus acres. “I watch after the timber and I feed the deer and the turkeys, and that’s what I do for a living now.”